Money And Investing  -

Try Cash Only

13 03 06 24 29

-------- Or Debit Only

(No Credit Needed inspired this article by posting a similar one, and is hosting this week’s Carnival of Debt Reduction).

Credit cards give us a false sense of economic power. Citibank ( C ) tells us to “live richly”. VISA tells us that “life takes risks”. The reality is that if you live richer than your income allows, you are taking the risk of getting yourself into a miserable situation. When expenses consistently exceed income debt will grow exponentially, until it can become unmanageable.

When credit card balances are spiraling up:

• The simplest emergency can force someone to skip payments, damaging the same credit score needed to allow to “live richly”.
• Misery likes company. Several emergencies may happen at the same time. If you have savings you may be able to survive some or all of them. Once savings, if any, are depleted, you will need to use credit – the same credit that may be maxed up already.
• The more debt you accumulate, the longer and/or the harder you have to work to clear up the debt. This may force you to keep working even if you want to take time off to take care of kids or ailing parents, or if you just want to take off to enjoy life someday.

I follow a slightly different approach. I do like to accumulate miles/points and to enjoy the extra protection that credit cards give. However, I do have funds saved specifically to cover the expenses I do. I have $900 saved that covers the $900 limit I set myself for monthly credit card purchases. If I need to spend more than $900 for some reason, such money has to be saved and stored before I charge it up. That assures me that the money is there to pay, before the purchase is made. (Read more details about my credit card strategy).

If debt has recently started to accumulate, try living out of cash or cash equivalents only. It may just get you back in control and into a healthy financial situation. It may be difficult at first, but keep trying: it may be the only way to make sure you can live within your means.